On Thursday, June 27, 2013, Ontario Securities Commission ("OSC") staff published Notice 43-705 Report on Staff's Review of Technical Reports by Ontario Mining Issuers ("the Notice"). The Notice discusses the results of a recent staff review ("Review") of select technical reports filed by Ontario mining issuers in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101"). The results were not encouraging, as approximately 80% of the technical reports had some form of non-compliance and approximately 40% of the technical reports contained at least one "major non-compliance concern". Nevertheless, the Notice does provide helpful guidance to other mining issuers and qualified persons regarding the preparation of technical reports and common deficiencies that should be avoided.
Scope of Review
The Review involved approximately 50 technical reports ("the Technical Reports"), which were selected to provide a representative sample of mining issuers in the Ontario public markets. To put the Review in context, this represents approximately 10% of all the technical reports filed by Ontario issuers during the 12 month period ending on June 29, 2012.
Significant Areas of Concern
The Notice identifies five areas of "significant concern" regarding compliance with NI 43-101:
- Mineral Resource Estimates. 25% of the Technical Reports disclosing mineral resource estimates did not provide assumptions regarding "reasonable prospects for economic extraction," or otherwise provide sufficient discussion of the key assumptions, parameters and methods used to estimate the mineral resources for a reasonably informed reader to understand the basis for the estimate and how it was generated. Many Technical Reports did not clearly disclose the assumed metal price or factors related to the mining scenario or mineral processing recovery, while others failed to disclose the cut-off grade used to estimate the mineral resources. It is imperative all that key assumptions, parameters and methods be included that support the mineral resource estimates.
- Environmental Studies, Permitting and Social or
Community Impact. 32% of the Technical Reports on
"advanced properties" did not adequately disclose
information related to environmental permits or the social or
community impacts of developing the mineral project. In addition,
it was also found that some Technical Reports did not disclose how
surface rights issues would be addressed, or whether there was an
exploration agreement in place or under negotiation with local
First Nation communities. For advanced properties, a discussion
with respect to potential social or community related requirements,
plans for the project, the status of negotiations with the local
communities and mine closure requirements and costs should be
"Advanced properties" are properties that have (a) mineral reserves, or (b) mineral resources the potential economic viability of which is supported by a preliminary economic assessment, a pre-feasibility study or a feasibility study.
- Capital and Operating Costs. 26% of the Technical Reports on advanced properties did not adequately disclose a summary of capital and operating cost estimates, with the major components set out in tabular form as required by NI 43-101. In some cases, the main components of the capital cost estimate were not provided. In other cases, the Technical Report did not provide justification for how the operating cost estimate was determined or why certain costs were assumed. The context and justification for capital and operating cost estimates should be included for advanced properties.
- Economic Analysis. 37% of the Technical Reports on advanced properties did not sufficiently disclose the economic analysis for the mineral project. NI 43-101 provides that the economic analysis must include a clear statement of and justification for the principal assumptions and cash flow forecasts on an annual basis using mineral reserves or mineral resources and an annual production schedule for the life of the project. It must also include a discussion of net present value, internal rate of return and payback period of capital with imputed or actual interest. Some Technical Reports did not provide cash flows on an annual basis or provide an appropriate sensitivity analysis with related impacts on the economic analysis. In addition, 40% of the Technical Reports on mineral projects at a preliminary economic analysis stage did not adequately address the issue of taxes applicable to the mineral project. The impact of taxes and adequate sensitivities, both positive and negative, should be outlined with the economic analysis.
- Interpretation and Conclusions. As a result of recent amendments to NI 43-101, technical reports are required to discuss any significant risks and uncertainties and any related reasonably foreseeable impacts of these risks and uncertainties. The Review found that 36% of Technical Reports did not disclose project specific risks and uncertainties such as the availability of water rights, the use of a novel mineral processing technology or the potential impact of a civil war in the region. Consideration should be given to including a table showing the significant project specific risks, potential outcomes and mitigating factors.
Other Areas of Concern
Other areas of concern noted by OSC staff include:
- Summaries. A failure to provide a useful summary for the technical report. A qualified person should refer to section 5.4 of Form 51-102F2 Annual Information Form as a template for the summary section.
- Historical Estimates. A failure to
provide sufficient cautionary disclosure in connection with the
reporting of historical estimates. If applicable, the following
cautionary language should be stated with equal prominence:
- a qualified person has not done sufficient work to classify the historical estimate estimate, and
- the issuer is not treating the historical estimate as a current resource estimate.
- QP Certificates. The inclusion of deficient
qualified person certificates with a Technical Report. Qualified
persons should ensure all the statements outlined in subsection
8.1(2) of NI 43-101 are included.
What Does The Review Mean for Me?
Given the levels of non-compliance revealed by the Review, mining issuers should assume that compliance with the technical report provisions of NI 43-101 will remain a top priority for OSC staff. As a result, further continuous disclosure reviews will be likely, and staff will closely monitor technical report compliance in connection with public offerings. Furthermore, where a technical report is non-compliant in a manner described in the Notice, issuers should expect less sympathy than usual. We therefore urge all mining issuers to review the guidance contained in the Notice and, if needed, seek our assistance, to ensure that their technical reports are fully compliant with NI 43-101.
A copy of the Notice is available here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.